Providence Expects to End Year Over $19 Million in the Hole

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Wednesday, July 11, 2012

Dan McGowan, GoLocalProv News Editor

Despite reaching a landmark pension reform agreement with retirees and signing deals to increase payments in lieu of taxes with several major nonprofit institutions, Providence still faced a budget hole of more than $21 million by the end of May, according to the most recent monthly operating statement released by Deputy Finance Director Lawrence Mancini.

The May operating statement, released on June 29, projected that the capital city would finish the fiscal year (which ended June 30) with an $11,479,604 deficit and would be short on its annual required contribution to the pension fund by $10,000,010. While the final numbers for the fiscal year won’t be released until later this month, little is expected to change regarding the city’s deficit for the year.

The Taveras administration refused to comment for this story, but City Council President Michael Solomon said the city is well on its way to recovering from the $110 million structural deficit the administration and the Council inherited when they took office in 2011.

"Immediately after taking office in January of 2011, this Council was confronted with an unprecedented fiscal crisis,” Solomon said. “With a structural deficit towering over $100 million dollars and an unfunded liability growing exponentially each year, this Council recognized the need for immediate and decisive action. We have made significant strides along the path to fiscal stability, and, while we have not crossed the finish line yet, I am confident that we will continue to make the tough choices necessary to do so."

Agreements Helped Save City

The agreements with the retirees and the nonprofits were considered crucial to helping the city stave off municipal bankruptcy, which Mayor Angel Taveras warned was a possibility earlier this year when reports of the city’s immediate cash flow problems came to light.

The pension reform deal, which was overwhelmingly approved by the city’s police and fire retirees, freezes cost-of-living-adjustments for retirees (COLAs) for ten years, eliminates five and six percent compounded COLAs, places a cap on pensions and moves retirees over the age of 65 onto Medicare. The city projects the pension reform savings will cut its unfunded liability by $170 million.

Of the nonprofits institutions, only Providence College and the Rhode Island School of Design (RISD) have failed to reach agreements with the city. Brown University agreed to pay $31.5 million over 11 years. Lifespan, the city largest hospital group, agreed to pay the city $2.4 million. Johnson & Wales agreed to pay at least $6.4 million.

“Getting a deal with retirees and reaching an agreement with the tax exempts were both major achievements, but we all recognize that there is still more that needs to be done,” said City Councilman David Salvatore. “We need to identify savings and spending cuts to close the budget gap.”

2013 Budget will be “Very Tight”

That budget gap is in part thanks to shortfalls in the two public safety departments and in public works, which faces a $3.3 million deficit. Salvatore said that while the majority of city departments have controlled costs over the last year, “every City department should understand that they have to manage toward their budget number.”

“We are no longer in a place where we can afford to turn a blind eye to excessive overtime or cost overruns in any city department,” Salvatore said.

Councilman Sam Zurier, who serves as vice chairman of the Council’s finance committee, agreed with Salvatore. He said he expects the 2013 fiscal year budget to be “very tight” and that the Council will have to monitor it more closely than it has in previous years. He predicted there will be more oversight hearings earlier in the fiscal cycle than in years past.

“I am concerned about the carryover deficit from last fiscal year to this one,” Zurier said. “The Internal Auditor is reviewing the figures with the administration. In addition to the budget deficit there is a cash flow issue the City faces in the coming year, because it is difficult to borrow money and there are no ‘one time fixes’ such as asset sales to employ at this time.”

Pension Contribution a Concern

While the city still faces cash flow problems, moving up the first quarter tax deadline and advances in state aid are expected to help the city avoid running out of money. As far as the budget, the city chose to draw down from what was left in the Civic Center fund (just over $3 million) to help lower the deficit.

But Salvatore and Zurier said they do remain concerned about shorting the annual pension contribution. Zurier said the finance committee will ask the administration to justify the proposed reduction and noted that is possible the reworked pension deal with retirees could allow for a lower contribution.

“If there is not an adequate justification for the reduction in the pension fund contribution, I anticipate the Finance Committee will ask the administration to propose alternatives,” Zurier said.

Salvatore said he is against not making the full payment, but suggested he is more concerned with a projected shortfall in the city’s retiree health care budget.

“I am not a proponent of postponing the municipal payment to the pension fund, however, I am more apprehensive about the $18 million shortfall surrounding the city's retiree health care budget,” he said. “Next week I will be introducing a proposal that takes a serious look at unnecessary expenses being triggered in our health care contracts.”

Dan McGowan can be reached at dmcgowan@golocalprov.com.

 

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